Daily ShareChat: Fletcher Building

By Jenny Ruth

Friday 21st May 2010

As the market begins to shift its focus from the six months ending June to the following year, Fletcher Building's earnings recover will look increasingly more assured, says First NZ Capital analyst Kar Yue Yeo.

Based on management's recent guidance, Kar Yue says he now has greater confidence in his 2011 forecasts - he is forecasting adjusted net earnings of $378 million for the year ending June 2011, rising compared with his $303 million forecast for this year.

He says his forecasts are based on forward activity indicators including residential, non-residential and infrastructure construction.

"This is supported by an improving New Zealand economy and employment level which will further drive the present recovery in housing."

New Zealand earnings fell from 55% of group earnings in the six months ended December 2008 to 45% in the same six months of 2009, reflecting the recessionary environment. Kar Yue expects residential consents will ease slightly in the next four months before resuming a recovery.

His estimated post-tax return on invested capital of 12.3% is conservative relative to Fletcher Building's 13.9% average return levels over the last 10 years.

Kar Yue has reset his 12 month target price for the stock to $9.50 from $8.75 previously.

BROKER CALL: outperform (from neutral).

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